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4 Steps to an Effective Performance Management Process

At some organizations, a performance review is something that only takes place once or twice a year, and then gets put to the side until the next one rolls around. But having an effective performance management process in place allows you to measure employee performance year-round and shape it with regular appraisals and check-ins.

A performance management process can include everything from initial goal setting and mentoring to a corrective action plan. The important thing is that it’s applied consistently and clearly to ensure a high level of collaboration and buy-in from team members.

Here are the key elements of the performance management cycle, and how to go about setting up a performance management system for your team.

What Is a Performance Management Process?

According to the Gallup polling organization, up to 74% of employees receive an annual performance review—but only 14% feel motivated by it. By extending the annual review process into a system of continuous performance management, you can achieve your organizational goals in a way that’s better suited to the modern workplace.

Research shows that performance management practices are “mutually reinforcing,” improving employee engagement and retention by tying performance standards to individual goals and career development opportunities.

Plus, by turning performance evaluation into a continuous process, you can update performance plans based on real-time metrics and constructive feedback.

Why Is a Good Performance Management Process Important?

The standard performance review process, with an annual performance appraisal and a single round of feedback, can feel removed from an employee’s day-to-day experience in the workplace. A top-down performance review can feel invasive, overbearing, or simply at odds with an employee’s own perception of their performance.

Performance management takes an employee’s individual goals into account, making the process more of a two-way street. Employees benefit from clearer performance expectations and receive continuous feedback from their managers.

By including employee recognition and development initiatives, you can help employees reach their own goals faster, while furthering your company’s organizational goals. 

Ultimately, it becomes easier for managers to guide individual and team performance, and the entire organization benefits from healthier employee relations overall.

4 Stages of the Performance Management Cycle

Performance management has played a role in dozens of organizations, from the U.S. Military to Fortune 500 companies.

While each organization has its own performance management strategy, they usually incorporate some version of the following four stages:

1. Planning and Goal Setting

Performance management process: entrepreneurs looking at a document

The performance management cycle starts with setting clear goals and expectations. Sometimes called the “planning” phase, this should be done in collaboration with the employee, not in a distant corner of your human resources department.

The best goals follow the SMART formula. That means they’re:

  • Specific: SMART goals have a clear objective. Instead of “Get better at X task,” determine exactly what skills you want the employee to focus on.
  • Measurable: What criteria will you use to assess the employee’s performance? This could include sales figures, project deliverables, or other KPIs.
  • Achievable: SMART goals should be realistic. Are they within the employee’s core competencies, or do they require additional training or guidance?
  • Relevant: Your goals should align with your company’s values and mission. If they come out of left field, employees may struggle to internalize them.
  • Time-bound: SMART goals shouldn’t be open-ended. Set a clear timeline for reviewing the outcome to see whether the initiative was successful.

During the planning stage of the performance management process, be sure to take a close look at the employee’s job description to make sure it’s still accurate.

2. Coaching and Monitoring

The next stage in the performance management cycle involves real-time monitoring and coaching of employee performance. For example, on a sales team, this might look like the sales manager monitoring calls and providing individual performance feedback when necessary.

This could also involve more basic workplace behaviors, such as monitoring tardiness and appropriate use of personal leave. Performance management software makes it easy to track these metrics and attach them to specific performance goals.

By addressing an employee’s performance on a continuous basis, it becomes part of the workplace culture and isn’t seen as inherently punitive or intrusive.

Of course, managers should be sure to offer positive feedback in addition to criticism, and be receptive to receiving feedback in return.

3. Review and Development

The next stage involves a more thorough review of the employee’s performance over time. This is essentially an annual performance review, but it can be done at shorter intervals if you want to revisit employee goals on a more frequent basis.

It’s important to compare each employee’s current performance to previous reviews to note areas of improvement or setbacks. By taking stock of the bigger picture, you can course-correct, rather than make incremental improvements.

This is the time to implement a corrective action plan, if necessary, or explore employee development opportunities, such as further training or career development. You can also consider incorporating 360-degree feedback, at which stakeholders at various levels of your organization participate in the review process.

4. Rate and Reward

The next stage in the performance management process is to present employees with the results of your assessment—both good and bad. While ongoing feedback is helpful, it’s important to provide documentation of your evaluation and how you arrived at the conclusions you did.

A clear rating system or template ensures that your performance management process is applied consistently, without favoritism or bias.

In addition to a formal evaluation, be sure to reward your employees throughout the year when they make progress on specific goals. This can be a simple message of appreciation or a company-wide employee recognition ceremony.

You can use performance management tools to standardize the employee recognition process, with cash rewards or bonuses for meeting certain criteria.

Performance Management Best Practices

A good performance management process doesn’t just happen organically. It requires a shift in company culture and investment at all levels of your organization. But using the right tools for the job can significantly reduce the demands on your workforce.

Here are three tips to improve your performance management process:

1. Get Buy-In From All Stakeholders

Your executives, team managers, and employees all need to be on board in order for your performance management system to be effective. If employees see it as just a “box-checking” exercise, it diminishes the value of the process.

And make sure there’s something in it for employees too. A rigid performance review process may enrich your organization at the expense of your employees’ well-being. When you link employee performance to career development opportunities, they’ll become more invested in achieving your organizational goals.

2. Keep It Flexible

There’s no fixed timeframe for an effective performance management cycle. Because it’s a cycle, you can move forward continuously, and make improvements each time. While an annual review process might work for some organizations, others may be better off reviewing performance twice a year, or even every quarter.

Be sure to revisit your organization’s goals, employee job descriptions, and any other variables each time you begin the cycle.

3. Use Automation as Much as Possible

Performance management tools can take the guesswork and improvisation out of the process. Plus, for large organizations, it simply isn’t possible to provide peer reviews and 360-degree feedback without some technological help.

Performance management software can help you standardize the process so it’s fair and consistent, and even allows you to reward good behavior automatically so that newly trained or remote team members don’t get overlooked.

And of course, by digitizing your entire performance management process, you’ll do away with clunky paper systems that are hard to keep organized.

Streamline Performance Management With Automation

Group of employees talking to each other

The performance management process is a continuous cycle of review and feedback that can vary widely from one organization to the next. By automating as much of your performance management system as possible, you’ll be able to reduce the amount of time it takes to perform reviews, while improving the quality of the process.

Pulpstream is a no-code workflow automation platform that can help you digitize key steps in your performance management process. We also offer solutions for leave of absence management, claims management, incident management, and more.

Get in touch today to request a demo and see how it works!